What this lesson teaches
I can explain how globalisation brings countries both economic growth and economic vulnerability.
Syllabus K230, Issue 3, Guiding Question 2, Economic impacts of globalisation. Economic growth and economic vulnerability experienced by countries
Make a guess
In 2008, a banking crisis began in the United States. What do you think happened to Singapore's economy?
- It grew faster, because worried investors moved their money to Singapore.
- Exports fell as world demand dropped, and Singapore went into recession.
- Little, because the crisis began in another country far away.
Show the answer
Exports fell as world demand dropped, and Singapore went into recession.
Relying on overseas customers means problems abroad can hurt the economy at home. This is economic vulnerability.
Relying on other countries for customers, supplies or investment means problems abroad can hurt the economy at home.
Picture a factory with plenty of orders. Its overseas supplier suddenly closes, so a key part cannot arrive. The factory must stop work. A problem abroad has hit production at home through the supply link.
Economic vulnerability means being exposed to changes that can harm economic activity. There are three main routes. If overseas demand falls, exports fall. If supplies are disrupted, factories cannot produce or costs rise. If foreign investment or loans dry up, projects are delayed.
An external shock is an unexpected problem that starts outside the country. During the COVID-19 pandemic in 2020, global supply chains were disrupted and many countries' economies shrank, including Singapore's.
How hard a shock hits depends on how much a firm relies on one source. A firm with other suppliers, other customers or savings copes better than one that depends on a single source. Problems spread through linked firms, but not every industry is hit equally.
Keep two ideas apart. Slower growth means output still rises, just more slowly. A recession is a serious, widespread fall in economic activity across the economy, not one firm losing orders. Globalisation can carry a shock into the country, but it does not cause every economic problem. Decisions and conditions at home matter too.
- Economic vulnerability
- Being exposed to shocks from outside the country.
- External shock
- An unexpected problem that starts abroad.
- Protection
- Several suppliers, several markets, savings.
Real examples to use
Global financial crisis, 2008-2009
A banking crisis that began in the United States cut world demand. Singapore's exports fell and it went into recession.
COVID-19, 2020
Border closures stopped most tourism and air travel. Singapore suffered its worst recession since independence.
Worked example: A missing part stops production
Several Singapore medical-equipment factories use a sensor from one overseas supplier. A flood stops that supplier's production. The factories run out of sensors before they can approve a new supplier.
- The problem starts abroad.
- It reaches Singapore through the supply link.
- Relying on one supplier made the factories vulnerable. The delay is not a sign that local workers became less capable, and one industry's problem does not by itself mean a nationwide recession.
Watch out for this
A problem in one overseas market must hurt every business at home.
The impact depends on how much each business relies on that market. Some are hardly affected.
Check your understanding
Which business is least vulnerable to a supply disruption in one country?
- A firm that buys its parts from suppliers in several different countries.
- A firm that keeps little stock so that it saves on storage costs.
- A firm that buys from one large, reliable overseas supplier at a low price.
Show the answer
A firm that buys its parts from suppliers in several different countries.
Yes. It can switch to other suppliers.
Check your understanding
In 2020, visitor arrivals to Singapore fell by 85.7%. Why does this show economic vulnerability?
- It shows tourism was becoming less important to Singapore before 2020.
- Border closures abroad cut the spending that tourism jobs relied on.
- It shows Singapore's attractions had become too expensive for most visitors.
Show the answer
Border closures abroad cut the spending that tourism jobs relied on.
A problem outside Singapore hurt its economy directly.